Buyers regain negotiating power amid historic downturn

Australia’s property market is entering a new phase, with falling home values, rising interest rates and growing vendor discounting creating a very different landscape for buyers and sellers.

New data suggests the downturn is now spreading beyond Sydney and Melbourne, with some of the country’s previously strongest-performing capital cities recording their sharpest declines on record. At the same time, regional markets are proving more resilient, while buyers are gaining greater negotiating power as properties take longer to sell and advertised stock accumulates.

Combined capital city home values fell for the seventh consecutive month in October, taking cumulative losses to 8.1 per cent according to Cotality. This is the fastest comparable decline in more than 40 years and puts the market within striking distance of the previous record peak-to-trough fall of 8.2 per cent, recorded between October 2017 and May 2019.

Cotality Head of Research Gerard Burg said the current downturn could surpass that benchmark as the correction extends across the country.

Sydney has recorded the largest decline, with values down 10.1 per cent from their February 2026 peak. Melbourne has fallen 7.8 per cent since peaking in November 2025, while Perth has recorded an 8.9 per cent decline, Brisbane is down 8.3 per cent and Adelaide has fallen 4.4 per cent.

The changing conditions reflect the impact of higher borrowing costs following five interest rate increases in 2026, with the Reserve Bank lifting the official cash rate to 4.85 per cent in November.

The correction is not affecting every market equally. Combined regional dwelling values have fallen just 3.1 per cent from their peak, while annual values remain 3.4 per cent higher. Darwin and Hobart are also yet to show clear signs of a downturn.

More choice and greater negotiating power

For buyers, the softening market is creating opportunities that have been largely absent during the recent years of strong price growth.

Cotality data shows vendor discounting has widened for eight consecutive months, reaching 4.5 per cent nationally. Homes are also taking longer to sell, with the median time on market increasing to 41 days over the three months to October.

A separate analysis by the Real Estate Buyers Agents Association of Australia (REBAA) identified Australia’s 20 most negotiable suburbs, where vendor discounts range from 8.7 per cent to more than 14 per cent.

The list spans regional, suburban and prestige markets, highlighting how local conditions can differ considerably from national trends.

Sydney’s Killara ranked sixth nationally, with vendors accepting discounts of 9.9 per cent despite a median dwelling value approaching $2.74 million. In Victoria, Blairgowrie recorded discounts of 9.5 per cent alongside an annual value decline approaching 10 per cent, while Queensland suburbs Ashmore, Merrimac and Paradise Point also featured prominently.

REBAA President Zoran Solano said buyers who understood local market conditions and entered negotiations well prepared could secure properties for considerably less than their advertised prices.

Cotality Research Director Tim Lawless said advertised stock had accumulated as properties took longer to sell, despite the flow of new listings remaining almost 20 per cent below average for this time of year.

Fewer new properties are coming onto the market, but the existing stock is taking longer to clear, giving buyers more choice and greater leverage than they had a year ago.

Affordability remains a major hurdle

Despite falling property prices, improved affordability remains elusive for many Australians.

InvestorKit’s Spring 2026 affordability review, covering eight capital cities and 25 major regional markets, found house prices had declined across 25 of the 33 markets examined over the six months to the third quarter. Relative affordability, however, improved in just 13 markets.

Higher borrowing costs have offset much of the benefit of lower prices, reducing household borrowing capacity and increasing mortgage repayment commitments.

Sydney remains particularly stretched, with its median house price assessed as 47 per cent above InvestorKit’s affordability threshold at a 6.75 per cent mortgage rate. Brisbane was 37 per cent above its threshold, while Melbourne was 18 per cent above.

The research also found no regional city in its assessment remained undervalued under the current interest rate assumptions, although Mackay and Ballarat were the closest to affordability.

Regional markets offer a different picture

The affordability squeeze is also influencing where Australians choose to buy, with more purchasers considering regional locations and making trade-offs around property type, size and location.

New realestate.com.au data identified 74 coastal suburbs where a typical house costs less than the $735,000 median unit value across Australia’s combined capital cities.

Prices range from just $330,000 in Solomontown, South Australia, to $732,500 in Old Beach, Tasmania.

Queensland accounted for approximately a quarter of the affordable coastal locations, including Scarness, Emu Park and Eimeo, while Victoria contributed 17 suburbs, including Cowes, Lakes Entrance and Venus Bay.

Most of the identified suburbs recorded annual house price growth, although 11 experienced declines.

Realestate.com.au Senior Economist Eleanor Creagh said higher interest rates were forcing buyers to reconsider their priorities, with more affordable regional markets remaining accessible to a larger pool of purchasers than many capital city alternatives.

Interest rates and confidence remain the wildcards

Further market adjustment is likely to depend heavily on interest rates, household confidence and the broader economic outlook.

Bendigo Bank Chief Economist David Robertson expects the cash rate to remain on hold for most of 2027, subject to incoming employment, inflation and spending data. He believes persistent inflation, particularly the flow-through effects of elevated energy costs, will keep monetary policy restrictive.

Meanwhile, CreditorWatch Chief Economist Ivan Colhoun warned that the cumulative impact of inflation and recent rate increases was continuing to weigh on households and businesses.

He noted that consumer prices had increased almost 26 per cent over six years, with further interest rate increases likely to place additional pressure on retailers and consumers heading into the Christmas trading period.

For property investors, the combination of softer prices and resilient rents is beginning to improve rental yields. Cotality puts the national gross rental yield at 3.9 per cent, with yields rising as dwelling values decline and rents continue to increase.

InvestorKit also identified early signs of improving yields across its capital city and regional markets, with 23 of the 33 locations recording higher yields than a month earlier.

While higher interest rates and stretched affordability are driving a historically significant correction, differences in supply, employment, rental demand and previous price growth are creating very different outcomes between markets.